Road Warrior

Complacency: The Silent Killer

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It used to be said blood pressure that is too high or too low was a silent killer to the human body. The silent killer in business is complacency.

The worst mistakes are frequently made during good economic times. A case in point is the recent great commodity super cycle, which was the impetus to complacency, lasting for a decade, two and one half times the duration of any other previous super cycle. As commodity prices rose, money was left on the table, resulting in some producers abandoning risk management and marketing plans.  In other cases, with land values appreciating at double-digit rates, profits and cash were invested in long-term assets such as land in a “grow at all costs” mentality. Some producers assumed that agriculture was in a new paradigm and that the positive cycle had become the new normal.

Extended periods of prosperity bring confidence and a willingness to take more risk in investments that are further out on the risk curve. This is human emotion, which drives approximately 80% of all decisions.  When the economic tide turns, fear runs relentless, frequently leading to dramatic shifts in the marketplace.  In this environment, decisions made on farms and ranches are often made out of fear. Producers try to seek a magic silver bullet to turn the business on a dime.

Success by good managers who avoid complacency usually involves some of the following practices.

  • They have advisory teams that ask tough questions and challenge the status quo thinking. Good managers do not become upset, pouty, or fire the advisory team. They will seek strategies from both internal and external teams, and then implement new strategies and monitor them for success.
  • Successful managers will have dashboards of key metrics for operations, management, finances, marketing, etc. They will conduct a trend analysis of these metrics, and then compare their performance to the top 20 percent of their peers. Benchmarking and dashboards are a key management technique that challenges the business to avoid complacency.
  • Finally, avoiding complacency requires getting outside your industry and observing other businesses, managers, and employees. One best management practice that some organizations have implemented is requiring all owners, board members, and employees who attend conferences to come back with a one page executive summary to “discuss and fuss” with colleagues and challenge the status quo of the business.

Complacency can be the silent business killer. Peer analysis and benchmarking can be the catalysts that motivate managers to focus on aspects of the business that are done well, and then step outside with the advisory teams and other leading businesses to break into new territory, taking the business to a new level.

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on Jul 27, 2014

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What's Road Warrior?

Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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